The low-Risk Road To Stupendous Wealth..!!.Book on investing in the stock market More about coffee can visit blog:-https://intelligentinvestir.in/the-power-of-compounding-the-8th-wonder-of-the-world/

1. Risk comes from not knowing what you are doing.’
—Warren
Buffett
COFFEE CAN INVESTING:-The Low-risk Road to
Stupendous Wealth
BY :-
SAURABHMUKHERJEA
RAKSHITRANJAN
PRANABUNIYAL

2. What is Coffee Can Portfolio Concept ?
The Coffee Can portfolio concept harkens
back to the Old West, when people put their
valuable possessions in a coffee can and
hid it under-the mattress. That coffee can
involved no transaction cost, administrative
cost, or any other miscellaneous costs
Coffee Can Portfolio is a concept based on
the research done by Rob Kirby. In simple
words, one selects a list of stocks or mutual
funds and invests in them, and then literally
forgets about it.
Source :- Groww

3. ‘The best time to plant a tree was twenty years ago. The
second best time is now.’
—ancient Chinese saying
INDEX :-
1. Mr Talwar’s Uncertain Future
2. Coffee Can Investing
3. Expenses Matter
4. The Real Estate Trap
5. Small is Beautiful
6. How patience and Quality intertwine
7. Pulling it all together
8. Designing you own financial plan

4. Mr Talwar’s Uncertain Future

5. The solution for Mr Talwar: Use the power of equity
To highlight the difference and show the power of compounding, Nikhil showed him
the final value from each asset class had Mr Talwar invested Rs 1 lakh in 1990, the
year he started his career
The Coffee Can Manifesto
Most Indians do not invest in equity at all. Those who do, do so in a
very haphazard manner. The result is that the long-term gains from
what is a very powerful asset class have eluded the majority of
affluent Indians. Granted equity carries more volatility, but the rewards
more than compensate for this. Also, volatility is sometimes overrated.
For a saver looking to build up a corpus for the next twenty to thirty
years, two to three year spurts in volatility do not matter

6. Coffee Can Investing
The Coffee Can Portfolio:- Robust returns with a low degree of uncertainty
Headquartered in Los Angeles, Capital Group is one of the world’s largest
asset management firms with assets under management in excess of US$1.4
trillion.
Robert Kirby joined Capital in 1965 as the main investment manager in Capital
Guardian Trust, where his job involved advising high net worth clients on
investments and managing their portfolios
The Coffee Can Portfolio comes to India :-
 There are around 1500 listed companies in India with a market cap above Rs
100 crore. Then, we look for companies that over the preceding decade have
grown sales each year by at least 10 per cent alongside generating Return on
Capital Employed (pre-tax) of at least 15 per cent.
Why ROCE ? A company deploys capital in assets, which in turn generate
cash flow and profits. The total capital deployed by the company consists of
equity and debt.

7. Revenue growth 10% or more : India’s nominal GDP growth rate has
averaged 13.8 per cent over the past ten years. In simple terms, A credible firm
operating in India should, therefore, be able to deliver sales growth of at least
that much every year. However, very few listed companies, only nine out of the
1300 firms generate 10% revenue growth
For Financial Services:-
ROE of 15% : Return on Equity because this is a better measure for banks’
(and other lenders’) ability to generate higher income efficiently on a given
equity capital base over time.
Loan growth of 15%:-Given that nominal GDP growth in India has averaged
13.8 per cent over the past ten years, loan growth of at least 15 per cent is an
indication of a bank’s ability to lend over business cycles

8. Higher probability of profits over longer periods of time:
The Sensex’s returns over the past thirty years have been
14.5 per cent on a compounded annualized basis, whilst
the standard deviation of returns (which is a measure of
volatility) has been 28.6 per cent. Now using these values
of returns and standard deviation and assuming a normal
distribution of returns (admittedly a simplifying
assumption), the probability of generating positive
returns over a one-day time horizon works out to 51.2 per
cent. As the time horizon increases, the probability of
generating positive returns goes up as the economic and
business cycle turns. The probability of generating
positive returns goes up to 70 per cent if the time horizon
increases to one year; the probability tends towards 100
per cent if the time horizon is increased to ten years
The power of compounding :
In the exhibit below, we track the progress
of this portfolio over a ten-year holding
horizon. As time progresses, stock B
declines to irrelevance while the portfolio
value starts converging to the value of
holding in stock A. Even with the assumed
50 per cent strike rate with symmetry
around the magnitude of winning and
losing returns, the portfolio compounds at
a healthy 17.6 per cent per annum over this
ten-year period, a pretty healthy rate of
return. This example demonstrates how
powerful compounding can be for investor
portfolios if only sufficient time is allowed
for it to work its magic

9. Expenses Matter
The second fund’s corpus exceeds that of the first
fund by:
•24 per cent after ten years;
•53 per cent after twenty years;
•89 per cent after thirty years
•133 per cent after forty years.
• A twenty-year-old who invests Rs 1 lakh when
he/she starts working will get Rs 1.11 crore when
they retire (at sixty) from the first fund which has a
2.5 per cent expense ratio. From the second fund,
which has a 0.1 per cent expense ratio, he/she will
get Rs 2.58 crore. That’s more than double the
corpus from the first fund
Direct schemes: SEBI’s knockout punch
Direct schemes were launched by SEBI in
2007. A direct scheme of a mutual fund has
the least expense possible because mutual
funds cannot give commissions to any
broker. Direct code investments give
investors an option to deal directly with the
fund house without any intervention by
intermediaries like distributors, agents,
financial planners, banks, etc. The process
to buy the scheme remains the same,
except that the investor keeps the broker
code field empty in a mutual fund
application form

10. The Real Estate Trap
‘House prices only go up’: Unlike other asset
classes like equity and debt, which can have a cycle
of three to five years (i.e. price movements change
their trend every three to five years), real estate runs
into super cycles of more than ten years. So, most
people who made significant profits in the bull cycle of
2003–13 don’t have any experience or memory of a
downward cycle. As a result, they get caught in the
belief that real estate prices can only go up.
$1 invested in the Dow in 1900 would have
become $30,447 in 2017. This compares to
only a return of $161 if the dollar was
invested in real estate. The story is not
unique to the United States
In fact, real estate has time and again gone
through boom-bust cycles across the
world. Unfortunately, because these cycles
are long, investors tend to forget the
previous bust when they are in the middle
of a boom, and the length of these cycles
(alongside poor data availability in an
emerging market like India) prevents them
from developing a deeper understanding of
this tricky asset class.

11. The shorter the holding period, the higher the quality premium
This observation is counter-intuitive. Interestingly, it is strikingly similar to the comparison between the batting
averages of two cricket legends—Rahul Dravid and Virender Sehwag—for various formats of the game. Dravid
was a great defensive batsman with an effortful (rather than effortless) batting style which lacked
flamboyance—characteristics that sound perfect for the test match format, i.e. five-day matches. Sehwag, on
the other hand, was an aggressive batsman, ready to flirt with unimaginable risks and looking to hit almost
every ball over the boundary—characteristics that sound perfect for one-day internationals (50-over matches)
and T20 international matches (20- over matches). While Dravid is perceived to be the accumulator of runs,
Sehwag is perceived to be the prolific scorer of runs. However, the table below shows an interesting
comparison. Not only does Dravid outperform Sehwag in every version of cricket, Dravid’s outperformance (as
measured by his batting average) is the widest in T20 and the narrowest in Test cricket.

12. Why does this happen? Why do the Coffee Can
Portfolios (CCPs) outperform the Sensex so
handsomely over the three-year and five-year
horizons? Remember, over shorter holding periods the
Sensex’s returns are more volatile whilst over longer
holding periods the volatility in the Sensex’s returns
reduces very sharply. The CCPs are full of companies
that are the Rahul Dravids of the business world—rare,
determined and constantly seeking to improve the
edge or the advantage they enjoy vis-à-vis their
competitors. As a result, the CCPs are able to deliver
healthy returns with low volatility even over three-year
and five-year horizons
The exhibit below compares the
volatility of returns for each holding
period of the CCP (as measured by
standard deviation) and shows that the
longer one holds a Coffee Can Portfolio,
the lower the volatility of returns.
To appreciate the power of this, we have
created another exhibit which shows
how the risk-return trade-off changes
with time. This time, in addition to
showing the returns from the Sensex
and the ten-year government bond, we
have also shown the returns from the
Coffee Can Portfolio on this chart.

13. The CCP has outperformed benchmark indices over all its seventeen
iterations

14. Sensex :-
Marico :-
Asian Paints :-

15. Thank You…!!!
Presented By :-
Mihir Phansalkar